July 11, 2013

Judge Says Apple Played ‘Central Role’ In Ebook Price-Fixing Scheme

US District Court Judge Denise Cote ruled yesterday that there was "compelling evidence" Apple had colluded to raise the cost of e-books. Five other publishers have also been accused of working together with Apple to get Amazon to push up their $9.99 price point, each of which had already settled before Apple landed in court. The US Department of Justice (DOJ) filed the suit against Apple and the five publishers last year on claims they had conspired to limit competition in the e-book market. Judge Cote said Apple played a "central role" in these dealings and could therefore face stiff penalties as a result.

"Apple chose to join forces with the publisher defendants to raise e-book prices and equipped them with the means to do so," said Judge Cote in her decision. "Without Apple's orchestration of this conspiracy, it would not have succeeded as it did."

As Apple prepared to make a move into the ebooks business with their iBookstore and the iPad, they began having meetings with some of the world's largest publishers, including Simon & Schuster, Hachette Book Group, Macmillan and HarperCollins. These publishers were reportedly growing concerned over Amazon's dominance in the ebook market. At one point, according to Reuters, Amazon carried 90 percent of the market by selling their digital books at a $9.99 price point. Apple claims they gave publishers an option to set their own price for the books, which in turn caused the prices in Apple's iBookstore to range from $12.99 to $14.99.

As a part of the agency model, publishers were allowed to set their own prices for the books as long as they agreed to two very important terms: One, they had to give Apple a 30 percent cut from every book sold. A similar term is found in Apple's agreement with app developers. Second, publishers were not allowed to sell their books anywhere else for a lower price point. In other words, if HarperCollins agreed to sell a title through the iBookstore for $14.99, they would be in breach of contract if they sold the same title through Amazon's Kindle store for the regular $9.99.

The plan worked and Amazon later adopted the agency model with their publishers. According to Judge Cote, Apple's actions and partnership with the publishers were decidedly antitrust and therefore could face hefty penalties. The publishers in this case settled before it ever went to trial. HarperCollins and Simon & Schuster, for instance, settled for $69 million, while Penguin settled for $75 million.

"This result is a victory for millions of consumers who choose to read books electronically," exclaimed Bill Baer, head of the DOJ's antitrust division. "This decision by the court is a critical step in undoing the harm caused by Apple's illegal actions."

Throughout the legal debacle, Apple has stood its ground, denying the price-fixing allegations. Today, Apple's spokesperson Tom Neumayr once more reiterated this poing, saying, "Apple did not conspire to fix e-book pricing. When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon's monopolistic grip on the publishing industry. We've done nothing wrong."